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March 11, 2013

Equities Beat Commodities by Steepest Ratio in 4 Years

Excitement, concern resonate over bull market’s duration

Is this the sunset of commodities' bull run?

We’ve seen what’s happened with the decrease in gold. Will other commodities follow? If present trends in the bull market persist, the answer is a resounding yes.

A glut of rice, falling prices for metals and surpluses in cotton and sugar mean a slump in what “comes from the ground” so far in 2013, with equities trading at their highest valuations in four years when compared with commodities. The news adds to excitement over the current bull market's run, but also to concerns over when (and how) it might end.

Bloomberg notes the ratio of the Standard & Poor’s 500 Index of equities to the S&P GSCI Spot Index of 24 raw materials reached 2.4 on March 6, the highest since February 2009.

“The S&P 500 is less than 2% from a record reached in October 2007 and has rallied 8.8% this year,” according to the news service. “The GSCI is up 0.3% in 2013 and 27% lower than the all-time high touched in July 2008.”

Bloomberg goes on the report that supplies will outpace demand for 12 of 18 metals and agriculture commodities, causing the slump. Citing Barclays and Rabobank International, it adds that at the same time, low global interest rates and stimulus from central banks have boosted company earnings, sending the Dow Jones Industrial Average to a record last week.

Production will exceed demand in aluminum, copper, lead, nickel and zinc this year, Barclays forecast in a Feb. 15 report. Surpluses are also expected in cotton and sugar, according to Rabobank International. Crude-oil stockpiles in the U.S., the world’s biggest consumer, are at the highest since the end of June, a government report showed March 6. Oil futures are little changed in New York this year.

“Equities are benefiting the most from the availability of cheap money as the growth story has been getting some traction,” Ole Hansen, the head of commodity strategy at Saxo Bank in Copenhagen told the news service. “The reason why commodities are not following is due to the fact the supplies are currently ample to meet increased demand.”

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